What is Cloud Accounting
Cloud accounting is largely the same as traditional paper or desktop accounting, however the majority of the accounting process is moved online to a cloud accounting software, such as Xero.
These cloud accounting software's are enhanced with the latest technologies and innovations, allowing you to transform your bookkeeping and accounting processes.
Benefits of Cloud Accounting
Running your business online using cloud accounting software has a number of advantages over other solutions. (See below)
Anytime/Anywhere Access
With cloud accounting, you can access your accounts and key financial figures anytime, from anywhere with an internet connection.
When you use a legacy, desktop-based system, you are effectively tied to the office. Your software, your data and your accounts are all sat on a local drive.
You either need to be in the office or you need to utilise often unreliable VPN type systems to access your information.
Cloud based software eliminates that problem and you simply log into your data using a web browser.
Sustainability
With an online accounting system, you can significantly reduce your paperwork and storage needs.
Sales invoices can be emailed out directly to customers, removing the costs of printing and postage.
Incoming bills and receipts can be scanned/photographed and saved directly with the associated transactions in the cloud system.
You no longer need to store hard copy invoices or waste reams of paper printing documents out for your own or customers records.
Collaboration
With legacy desktop software, you were often limited to one active user at any time. Anything above that could usually cause data corruption.
This is not the case with cloud accounting software such as Xero. Cloud software allows your whole team as well your accountant/advisers to access the same data at the same time.
This make collaboration so much easier when everyone can be logged in viewing the same information and making adjustments in real time.
System/Data Connections
There is a multitude of cloud software's and financial providers that can be integrated into the cloud accounting software.
By utilising these links, you can save a lot of time and cost by automating processes rather than having employees manually key transactions.
Automatic Updates
Everything is online so there aren't any updates or new features to install.
Every new version that is released by the software provider, will be automatically updated within your subscription, so you are always using the newest version and updated features.
Data Backup/Security
Cloud accounting software saves and backs up your data in real time with military levels of encryption. The information is encrypted at source and saved to the cloud, so it is only available to those in your business who have been granted access to the data.
With legacy software, you not only need to back-up regularly during the day, as part of your backup/disaster recovery plan. But you also are relying on your own local security measures for protection of the data.
Making Tax Digital (MTD)
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world and the Making Tax Digital (MTD) programme is a fundamental part of that.
The aim of the initiative is to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.
What does MTD for ITSA mean for you?
Under MTD for ITSA, affected taxpayers must:
- Maintain digital records of income and expenses using compatible accounting software.
- Submit quarterly updates to HMRC, providing real-time tax information instead of the traditional annual tax return.
- Adhere to revised reporting requirements, with penalties for non-compliance.
For any small sole traders and landlords who have kept records manually (pen & paper) or using older software systems, this will mean updating and changing accounting and bookkeeping systems so as to comply with the new regulations.
When will you be required to use MTD for ITSA?
The rollout of MTD for ITSA will be phased to allow businesses to adjust:
- April 2025: Voluntary for businesses who want to enrol and use the new system.
- April 2026: Mandatory for those turning over £50,000 annually.
- April 2027: Mandatory for those turning over £30,000 annually.
- April 2028: Expected to be mandatory for those with turnover over £20,000 annually.
What is compatible accounting software?
MTD for ITSA compatible software is software that works with HMRC's new MTD for ITSA systems. HMRC are not going to provide any software themselves so agents and taxpayers must obtain the software from external commercial organisations such as Xero.
HMRC currently have a list of compliant software on their website - HMRC Link
You need to use an MTD for ITSA compatible software product or products to enable you to:
- create and store digital records of your business income and expenses
- send quarterly updates
- submit your tax return by 31 January after the end of the year
- receive information back from HMRC
Do this mean sole traders and landlords need to complete four tax returns a year?
No, MTD for ITSA will require sole traders and landlords (or their agents) to send quarterly updates of their self-employment and property income and expenses to HMRC. If all done correctly using MTD for ITSA compatible software, the quarterly updates will be simple summaries generated by the software.
At the end of the year, taxpayers or their agents will still need to submit their annual tax return. This will already include information they have submitted during the year in their quarterly updates.
They will be able to finalise the self-employment and property income sources by making any tax or accounting adjustments in their software. As they do now, taxpayers will need to check and confirm the information in their return is correct before they submit it.
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